2007 in Fiji Where to from Here?

2007 2007 in Fiji Where to from here?

Author – Sophie Cottom Associate HVS International – Sydney, Australia

HVS INTERNATIONAL SYDNEY Level 1, 5 Elizabeth Street Sydney NSW 2000 Australia Tel: (61) 02 ‐ 9233 1125 Fax: (61) 02 – 9233 1147 Email: [email protected] Web: www.hvsinternational.com

Sydney Singapore Hong Kong London Madrid New Delhi São Paulo Buenos Aires New York San Francisco Boulder Denver Miami Dallas Chicago Washington, D.C. Weston, CT Phoenix Mt. Lakes, NJ Vancouver Toronto Over the last few years, Fiji has emerged as a tourism hot spot in the South Pacific welcoming over half a million visitors in both 2004 and 2005. This growth in visitation was underpinned by the public’s perception of Fiji as a ‘safe heaven’ in contrast to other near- regional destinations that suffered tourism downturns due to terrorism activity. However, 2006 was a difficult year for Fiji’s tourism industry as a result of re-emerging political unrest. Yet with several large-scale resorts currently under construction, the future success of Fiji is dependent on continuous growth in tourism visitation. Consequently, this article aims to review the events of 2006 in light of the effects of prior disturbances on visitor arrivals in an attempt to determine what path Fiji’s tourism industry may follow in 2007 and beyond.

Map of Fiji

Source: Lonely Planet Website

2006 was expected by many stakeholders to be a promising year for tourism on the back of very strong growth in arrival numbers in 2004 and 2005. However, the combination of negative perceptions associated with the general elections in May, the introduction of a 3% bed tax in June and the events leading up to the December 5 coup appear to have disrupted the continued growth of visitation to the otherwise peaceful South Pacific nation.

When looking back at visitation to Fiji after times of unrest, it is evident that tourism arrivals have returned relatively rapidly. Following the prior upheaval in 2000, which led to a 29% decline in arrivals, tourism figures escalated rapidly in the ensuing years to exceed 1999 levels by 2003. Further growth was reported in 2004 and 2005 by 17% and 6% respectively. The following graph illustrates these trends.

Table 1 Total Number of Visitors to Fiji – 1994-2005

600,000 25% 500,000 15% 400,000 5% 300,000 -5% 200,000 -15% 100,000 -25% 0 -35%

94 95 96 97 98 99 00 01 02 03 04 05 19 19 19 19 19 19 20 20 20 20 20 20

Total % Change

Note: the 2004 visitor arrival numbers have been released provisionally by the Fiji Islands Bureau of Statistics, while the 2005 numbers are estimates from the Fiji Visitors Bureau. Official data for 2006 is not yet available. Source: Fiji Islands Bureau of Statistics/Fiji Visitors Bureau

Further analysis of tourism arrivals by country of origin indicated that all of Fiji’s main source markets experienced a sharp downturn in 2000, before experiencing various degrees of recovery as depicted in Table 2.

Table 2 Visitor Arrivals by Source Countries with 1999 as Base Level – 2000-2004

160%

140%

120%

100%

80%

60%

40%

20%

0% Australia New Zealand Japan USA United Kingdom Europe Other Total

2000 2001 2002 2003 2004 Source: Fiji Islands Bureau of Statistics/Fiji Visitors Bureau

The Australian market is Fiji’s main source market accounting for over a third of visitation. The Australian market declined by 35% in 2000 before experiencing one of the fastest recoveries among all source markets, with visitor arrivals exceeding 1999 levels in 2002. This turnaround may be explained by the fact that Australia is one of Fiji’s closest neighbours, therefore lead-time for bookings are generally shorter, which leads to a quick return to normal once any threat to safety has passed. The strong surge in visitor arrivals in 2003 and 2004 may be the result of the 2002 Bali bombing with Fiji benefiting from a relocation of travellers that are still shying away from the Indonesian island as well as the introduction of a low cost airline - Pacific Blue in early 2004. Based on outbound figures for the year ended August 2006, as disclosed by the Australian Bureau of Statistics, we anticipate visitation to remain stable in 2006 before growing quite rapidly from 2007 onwards.

New Zealand Market

The New Zealand market bears a lot of resemblance to the Australian market with New Zealand travellers accounting for about 20% of total visitation. The New Zealand market declined by over 30% in 2000 before rebounding strongly in 2001 and recovering to 1999 levels by 2003. The strong surge in visitation in 2004 may be linked to the reduction in Air New Zealand airfares owing to the introduction of Pacific Express services in 2004. Similarly, the commencement of a low-cost airline - Freedom Air - in early 2005 is stimulating demand for travel to Fiji. Based on outbound figures for the year ended November 2006, as disclosed by Tourism Research New Zealand, we anticipate visitation in 2006 to marginally decline before gradually increasing to return to 2005 levels by 2007.

Japanese Market

The Japanese market experienced the worst decline in 2000, by nearly 50%, and is yet to return to 1999 levels of visitor arrivals. This significant decrease may stem from the combined effect of Japanese travellers being traditionally apprehensive and avoiding ‘dangerous’ destinations as well as the withdrawal of Air New Zealand services from Osaka and Nagoya in 2000. However, Japanese visitors returned to Fiji in 2001 and 2002, before falling away in 2003 probably as a result of the negative impact of SARS on air travel. Conversely, the recent growth of the Japanese economy may translate into higher disposable income and eventually an increase in outbound travel. That said, we anticipate visitor arrivals from Japan to continue declining in 2006 and 2007 before slowly improving in the ensuing years.

Interestingly, the American market was the least affected by the events of 2000 with a 15% reduction in visitor arrivals. Similarly, by 2001, total arrivals from this market were practically back to 1999 levels before stagnating for another two years. This may stem from the fact that Americans travellers coming to Fiji are experienced and are likely to base their travel decisions on a range of factors including personal safety. Additionally, Americans in Fiji tend to visit less-travelled destinations such as Vanua Levu or stay on island resorts, which are typically less impacted by security problems than the larger resorts on Vitu Levu. That said, early indications of visitor arrivals are for a decline in visitation in 2006 and growth is unlikely in 2007. We anticipate visitor arrivals to recover quite strongly in the three years thereafter, supported by the openings of several large-scale resorts to be managed by well-known hotel operators with strong affiliation in the USA.

UK Market

Fiji is a long-haul destination for UK travellers and, although the island is part of the Commonwealth countries, the prevailing economic environment in the UK does influence demand for long haul travel. Visitation declined by some 27% in 2000 before rebounding quite rapidly and returning to 1999 levels by 2002. Contrary to the Australian market, the lead-time for bookings is generally longer which, combined with the fact that UK travellers tend to be resilient, may explain why the decline in visitation was not as profound as that of other markets. We anticipate the UK market to have proven resilient in 2006 with an expected limited increase in visitation to be followed by stronger growth over the ensuing years.

Overall, the Australian and New Zealand markets proved the most resilient by achieving the strongest average annual growth between 2000 and 2005 by 20% and 17% respectively.

Historic Hotel Performance

An analysis of quarterly occupancy levels to Fiji’s main tourism regions (Nadi, Coral Coast, Mamanucas and Suva) indicates that, while all of these areas were affected by the downturn in visitation in 2000, the Coral Coast and Nadi were particularly afflicted. Occupancy levels declined to 20% and 47% during the September quarter in these two areas respectively. This correlates with the decline in visitation from both Australia and New Zealand, since Nadi and the Coral Coast feature Fiji’s largest resorts, which attract primarily Australian and New Zealand tourists. Interestingly, the Mamanucas appeared to have been affected differently by the unrest, with demand for accommodation experiencing a stronger decline in 2001 than in 2000. A potential explanation could be that the resorts located in the Mamanucas cater to a different clientele, comprising primarily Europeans, Americans and Japanese.

Sydney Singapore Hong Kong London Madrid New Delhi São Paulo Buenos Aires New York San Francisco Boulder Denver Miami Dallas Chicago Washington, D.C. Weston, CT Phoenix Mt. Lakes, NJ Vancouver Toronto Table 3 Quarterly Room Nights Sold to Fiji’s Main Tourism Regions and Quarterly Occupancy Levels to Fiji - June 1999-June 2003

140,000 80.0%

120,000 70.0%

100,000 60.0%

80,000 50.0%

60,000 40.0%

40,000 30.0%

20,000 20.0%

0 10.0% 99 99 99 00 00 00 00 01 01 01 01 02 02 02 02 03 03 Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun-

Fiji (Occ %) Nadi Coral Coast Mamanucas Suva Note: Events in 2000 lingered between the months of May and July followed by further military unrest in November Source: Fiji Islands Bureau of Statistics

2006 Visitation

The latest anecdotal evidence available from the Fiji Visitors Bureau (FVB) indicated that visitor arrivals for the four months ended April 2006 totalled 154,000, which represents a 4% decline over the previous corresponding period. This decline is primarily due to political instability and negative travel advisories associated with the May elections.

Table 4 Quarterly Occupancy Levels to Fiji’s Main Tourism Regions March 2005-June 2006

95.0%

85.0%

75.0%

65.0%

55.0%

45.0%

35.0%

5 5 5 5 6 6 r-0 n-0 p-0 c-0 r-0 n-0 Ma Ju Se De Ma Ju

Nadi Coral Coast Suva Mamanuca Fiji Source: Fiji Islands Bureau of Statistics

Sydney Singapore Hong Kong London Madrid New Delhi São Paulo Buenos Aires New York San Francisco Boulder Denver Miami Dallas Chicago Washington, D.C. Weston, CT Phoenix Mt. Lakes, NJ Vancouver Toronto Likewise, occupancy levels declined in the first two quarters of 2006 compared with the previous equivalent period, as a result of fears associated with the May election as well as the introduction of the bed tax in June. The opening of the 296-room Sofitel Fiji Resort and Spa on Denarau Island in late December 2005 probably had a compounding impact on performance levels in Viti Levu in the early part of the year. This is likely to have been further exacerbated by the opening of the 218- room Fiji Beach Resort & Spa managed by Hilton in July (although official statistics are yet to be released).

However discussions with hotel representatives before the December unrest indicated that visitation had picked up since the general elections and the Fiji Visitors Bureau was expecting arrivals numbers to reach 565,000, which would have represented a 6% increase in visitors compared with 2005. We believe that the actual result for 2006 is more likely to come out around 520,000 visitors, representing a 2% decline over 2005.

Table 5 Forecasts for Visitor Arrivals to Fiji by FVB and HVS International – 2005-2010

800,000

750,000

700,000

650,000

600,000

550,000

500,000

450,000

400,000 2005 2006 2007 2008 2009 2010

HVS Forecast FVB Forecast Source: HVS International/FVB

In preparing our forecast for visitation arrivals, we have made the following assumptions: • The Australian and New Zealand markets are expected to have proven resilient in 2006 and visitor arrivals from these countries are likely to surpass 2005 levels by the end of 2007. We anticipate these two markets to resume strong growth from 2008 onwards. • The Japanese market is expected to decline in both 2006 and 2007, albeit to a lesser degree. A recovery in visitor arrivals is anticipated from 2008 onwards, although arrival numbers are unlikely to return to 1999 levels before some time.

Sydney Singapore Hong Kong London Madrid New Delhi São Paulo Buenos Aires New York San Francisco Boulder Denver Miami Dallas Chicago Washington, D.C. Weston, CT Phoenix Mt. Lakes, NJ Vancouver Toronto • The American market is expected to have been negatively affected in 2006 and growth is unlikely in 2007. However, we expect this market to rebound strongly from 2008 onwards. • The UK market is likely to have been relatively stagnant in 2006 before resuming a steady growth in the ensuing years.

While it is acknowledged that the political unrest in Fiji had a negative impact on visitor arrivals throughout the November and December period, no actual data reporting on recent visitor arrivals is available as yet. Immediately after the coup, several articles commenting on the extent to which Fiji’s tourism environment was being affected were published. Most of these articles were primarily based on anecdotal evidence reported by some of the larger resorts in Nadi and the Coral Coast, which highlighted a decline in occupancy levels.

It is important to note that, despite any political unrest, Fiji remains committed to the long-term development of tourism on the island. Fiji’s long-term tourism ambitions were unveiled during the 2006 tourism forum, held in September 2006 at the Sheraton Fiji Resort, in an indicative summary of the initial strategic directions that will form part of a Tourism Development Plan 2007-2014.

Industry Response

In response to the December 5 coup, the Fiji Tourism Action Group, which was first formed after the unrest of 2000, was reactivated with the aim to quickly rebuild Fiji's tourism industry. The first phase of a F$5 million marketing campaign was launched on December 20 with further campaigns still to be developed.

This campaign, combined with heavily discounted promotional packages, appears to have been effective with some of the resorts on Denarau Island reportedly close to capacity over the Christmas holiday period. Tourism was given another boost before the New Year when Commodore Voreqe Bainimarama halted the proposed increase in Value Added Tax from 12.5% to 15%. Yet some uncertainties still remain for hoteliers who have reported lower levels of advance bookings for the post-holiday periods.

The Years Ahead

Overall, the FVB is confident that, following the downgrading of travel advisories and continuous marketing and promotional campaigns, visitor numbers will come back to pre-coup levels by mid-2007. However, this recovery is unlikely to be sufficient to achieve the FVB forecast for visitation arrivals of 610,000 in 2007. Similarly, although tourism stakeholders remain intent on achieving tourism earning of F$1 billion by the end of 2007, a revised forecast may be released by the FVB in the coming months.

Sydney Singapore Hong Kong London Madrid New Delhi São Paulo Buenos Aires New York San Francisco Boulder Denver Miami Dallas Chicago Washington, D.C. Weston, CT Phoenix Mt. Lakes, NJ Vancouver Toronto The apparent stabilisation of the political situation in Fiji with the appointments of key ministerial positions by the Commodore, who was sworn in as interim prime minister on January 5, is positive for investors, especially as several large-scale resorts are expected to become operational over the next two years. This significant enhancement of accommodation supply had already been expected to place some downward pressure on overall market performance. As such, any long-term downturn on tourism arrivals is likely to have a devastatingly negative compounded effect on market performances.

HVS International’s forecast for occupancy levels in Fiji is based on the anticipated growth in visitor arrivals to the country as well as the expected increase in supply summarized in Table 6. We note that the majority of hotel developments are primarily taking place on established tourism destinations including Denarau Island, the Coral Coast and the Mamanucas Group of Islands.

Table 6 Hotel Development Projects in Fiji

Project Name Location No of Rooms Development Status Estimated Opening Operator Fiji Beach Resort & Spa managed by Hilton Denarau Island 219 recently opened Jul-06 Hilton Hotels Amanuca Resort Tokoriki Island 98 under construction Feb-07 Independent Likuliku Lagoon Resort Malolo Island 46 under construction early 2007 Ahura Resort Radisson Resort Denarau Island 270 under construction Jul-07 Radisson Hotels & Resorts Yaukuve Island Resort Yaukuve Island 22 under construction early 2008 N/A JW Marriott Momi Bay 250 under construction early 2008 Marriott InterContinental Resort Natadola Beach 275 under construction 2008 InterContinental Hotels Group Grand Pacific Hotel Suva 120 approved 2009 InterContinental Hotels Group Source: HVS International

The following graph illustrates HVS International’s forecast occupancy levels in Fiji over the next three years.

Table 7 Forecast Annualized Occupancy Levels in Fiji – December 2005 – December 2009

66.0%

64.0% Start of the Forecast 62.0%

60.0%

58.0%

56.0%

54.0%

52.0%

5 6 7 7 7 9 9 9 -0 -0 06 -06 0 -0 -08 08 0 -0 c n- ep-06 c ar-0 un- c n- ep-08 ar-0 un- c De Mar Ju S De M J Sep-07 De Mar Ju S Dec-08 M J Sep-09 De

Fiji Source: Fiji Islands Bureau of Statistics/HVS International

The combined effect of significant increases in supply with lower than anticipated visitor arrivals is likely to dampen Fiji’s occupancy levels over the next two years before gradually recovering to exceed 60% by mid-2009.

Fiji is still considered a tourism hot spot in the South Pacific, now benefiting from new tourism infrastructure including a growing airline network as well as further openings of accommodation products. Although Fiji has been affected by several relatively (on a global scale) minor political and civilian disturbances in the past few decades, tourism arrivals have returned following times of unrest and have recorded steady growth year upon year.

However, the political events of 2006 have raised concerns of another setback for Fiji’s tourism industry as reports indicate that visitor arrivals, and demand for hotel accommodation, declined in the months leading to the December 5 coup. However, the reactivation of the Tourism Action Group soon after the event combined with aggressive marketing and promotional campaigns appear to have been relatively effective over the Christmas period.

While HVS International acknowledges that Fiji’s tourism prospects, particularly in the short to medium term future, are dependent upon the extent of the current political tensions in the country and the implications this could have on forward bookings for local hotels and resorts, tourism stakeholders appear determined to achieve visitation and earnings growth targeted for 2007. This united front may yet result in lessening the negative impact of the coup on visitation and enable Fiji’s tourism industry to recover more rapidly than before.

We expect the opening of several large-scale resorts in the coming years to provide both challenges and opportunities to Fiji. While the significant increase in supply is likely to negatively impact on the performance levels of individual properties, the introduction of additional international hotel operators combined with the marketing effort of FVB may also result in a substantial increase in visitation to the country.

About the Author

Sophie Cottom is an Associate in the Sydney office of HVS International. Sophie graduated in the top of her class at the InterContinental Hotel School in Sydney in 2003 with a Bachelor of Business in Hotel Management, having previously graduated as Dux of the semester at the Blue Mountains International Hotel Management School in Leura. She also holds a Diploma in Hotel Management from IHTTI in Switzerland.

She has been actively involved in hotel feasibility assignments around Australia and the South Pacific Islands including Fiji, New Caledonia and French Polynesia and has conducted extensive research on hotel markets in Australia and abroad.